By SuperRatings’ estimates, superannuation fund members in employer sponsored funds are paying some $50 million more in fees per annum than they could reasonably ascertain by reading disclosure documents.
ASIC’s recently proposed model does nothing to allow superannuation investors to make reasonable comparisons. What about all of non-disclosed payments which circulate between promoters, advisers and suppliers? Maybe the short term answer is just to abandon all disclosure requirements and let all parties take what they think is fair and reasonable!
This idea may not be workable, however, as apparently everyone has differing definitions of “fair and reasonable”.
I am a member of a superannuation fund and I would like to know how the promoter is remunerated for providing the various services. But let’s look at the reality. After reading hundreds of pages of disclosure documents, forgive me if I don’t understand that this particular fund does not provide me with an intra-fund tax deduction for the fees quoted. Hence, comparatively, my fees are 15 per cent higher than I think. Oh, and I didn’t pick up that the promoter will retain all interest gained from taking contribution tax out of my account early. And what’s this about charging me a buy/sell fee even though the fund didn’t incur one?
Perhaps the most discreet and most profitable trick is the recent phenomenon of the promoter taking a hefty slice (say 20 basis points) of the disclosed investment fee and pocketing this in order to reduce the administration fees that would otherwise be disclosed. Surely if a fund needs to charge $X to cover their administration costs (plus a margin if appropriate), then this is the figure which should be disclosed, not $X minus $Y. Don’t forget that 20 basis points equates to an extra $2 million on the bottom line for each $1 billion of assets, so the potential gain is significant.
Some Trustees either forget or don’t realise they are there to act in the best interests of members at all times. If the “best interests of members” means ripping them off blind, then some Trustees are doing a fantastic job.
And let’s not forget the poor financial planner. They need to make a dollar too, so let’s put in place a mechanism that allows them to take not only up-front contribution fees, a trailing commission, and say 25 per cent commission for the insurance placement, but let’s allow them to take further fees from a member’s account for providing one-on-one advice. The good thing in this case, however, is that this extra fee is sometimes limited to 10 per cent of the member’s account balance. Disclosed — yes. Moral — no.
I acknowledge that suppliers to super funds need to make a profit from the provision of services. I also acknowledge that the promoter needs to make a profit where appropriate. But it is the way these profits are being generated that is at the heart of this issue.
A clever marketer, with legal support, will always outwit the consumer or the regulator. This is a fact of life in the commercial world. So what needs to be done is for legislation to be introduced to limit fees chargeable on superannuation funds. My own preference: a single percentage amount which takes into account all fund costs underpinned by a minimum monthly dollar fee payable from the member’s account. For example: “total fees will be levied at the rate of 1.21 per cent per annum of assets with a minimum annual fee of $60.00”. No contribution fees, no additional advisor fees, no insurance commissions payable and definitely no rebates, fees or other forms of remuneration payable from a supplier to a fund or related party.
— Jeff Bresnahan is managing director of SuperRatings.
